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WASHINGTON –Senate Finance Committee Ranking Member Ron Wyden, D-Ore., today introduced the Modernization of Derivatives Tax (MODA) Act of 2017 that will prevent wealthy investors from using complex financial tools as a way to avoid paying their fair share of taxes. Last week the Trump administration issued a series of unprincipled tax reform goals that would allow wealthy investors to pay lower taxes than they are now.

Derivatives are essentially a financial bet that a stock or other investment is going to go up or down in value. Currently certain taxpayers are able to exploit a complex array of tax rules to make financial bets relatively risk free by delaying, minimizing or even avoiding taxes in ways that hardworking Americans can’t do.

“Our tax code is riddled with loopholes and elite giveaways that unfairly benefit the fortunate few,” Wyden said. “This legislation takes aim at a loophole that allows sophisticated investors to artificially lower their tax bills. It also eliminates the ability for these taxpayers to pick and choose what kind of tax they want to pay, and when to pay it. Ending these aggressive tax planning tactics is critical to achieving comprehensive tax reform that benefits all Americans, not just those at the very top.”

Wyden’s legislation creates one set of clear rules for taxing derivatives by requiring the recognition of gains each year (“mark to market”) and applying ordinary tax treatment to these gains, shutting down sophisticated tax games in the process. This bill would also repeal nine tax code sections and revise many others, making it easier for taxpayers to comply with a complex tax code.

Legislative text can be found here. A one-page summary of the legislative proposal can be found hereand a longer summary of the bill can be found here.

The Joint Committee on Taxation (JCT) score can be found here. The JCT technical explanation can be found here.